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Will Your Mobile Carrier Become Your New Bank?
April 1st 2011 -

It seems like the speed of emerging technology these days is outpacing everything around it, including our ability to maximize its benefits in our lives and the ability to establish effective boundaries to protect ourselves from abuses new technology can invite. In this month’s edition I’d like to address a new technology that will likely be in your next mobile phone – Near Field Communications or NFC.

NFC is a technology that arrives as a sort of hybrid device which promises to enable users to make real-world purchases without presenting a traditional form of payment. Instead, a small NFC transmitter in the mobile device possesses a unique identifier that can be read when it is in proximity of an NFC reader. It gives technophiles goosebumps to imagine the speed at which transactions can be processed, not fumbling for cash or remembering to carry a credit card.

But wait… wasn’t Bluetooth supposed to be the technology that would replace our credit card-addicted society? Why didn’t that technology ever emerge as the next great wave of commerce-connective devices? Great question! Let’s take a look at a few of the lessons we should be learning in order to understanding the potential benefits and pitfalls of NFC.

First and foremost, there is the speed of emerging technology and its cost to merchants. If a new technology renders the prior model point of sale equipment obsolete, the retailer is reluctant to adopt the new technology simply due to the scale of the deployment and the cost in terms of new hardware. If retailers upgraded their point of sale terminals as often as consumers upgrade their computers and mobile devices, the resulting cost of doing business could drive up the cost of every daily consumable we purchase by an average ranging from 20% to 50% depending on the class of merchandise. This is assuming of course that every upgrade is also backwards-compatible with previous technology or merchants risk alienating consumer late-adopters of technology. This reason alone holds the potential to derail the entire purported NFC revolution!

Second, the cost to the consumer may be unpalatable as well. Consider it this way – if your mobile device becomes your form of payment, this makes your mobile carrier at least one of your financial institutions. Your day-to-day purchases will not go through the bank issuing your credit or debit card anymore but rather through this wireless network and the account associated it. In the U.S. most mobile carriers already run credit checks on potential subscribers in order to determine if they are creditworthy to accept an account billed in arrears. Without sufficient credit, they may instead offer a prepaid plan that will protect them from losses resulting from subscribers’ failure to afford their usage habits. Pair that with consumer credit card addiction and you have the potential for a perfect storm – a credit-destroying shopping binge coupled with undisciplined phone, text and wireless data habits all nicely wrapped up in your monthly mobile phone bill and payment due next week.

Third, the question of security must be addressed. Credit card fraud already amounts to a multi-billion dollar a year liability for credit card issuing banks and networks. Now imagine that your credit card is screaming out its number from inside your pocket or purse to anyone standing within a few feet of you. This is not to imply that NFC is unsecure, but any technology that can be engineered can be reverse-engineered. The credit card companies have learned to manage fraud risks and protect consumers, but will mobile carriers take the same measures? Can they afford the same consumer protections with a revenue stream that is essentially ancillary to their core business? And will they add additional fees into the bargain, citing conveniences and even ‘security’ as they interpret it? Only time will tell.

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